RH Crushes 3Q Earnings Estimates; Wells Fargo Boosts PT

Luxury home furnishings retailer RH crushed analysts’ third-quarter earnings estimates as the company “is enjoying a tailwind that is driving increased demand for all things home.” 

RH’s (RH) revenue grew 25% to $844 million, coming in ahead of analysts’ forecast of $836 million. The company stated that due to higher-than-anticipated demand and supply-chain disruptions as a result of the virus, total revenue growth lagged demand by about 8 points in the quarter. Meanwhile, 3Q adjusted EPS exploded 122% year-over-year to $6.20, beating the Street’s consensus estimate of $5.27. The bottom line gained from a significant expansion in gross as well as operating margin.

Looking ahead, the company expects the gap between demand and revenue growth to be within a few points in 4Q. That said, RH thinks the recent spike in COVID-19 cases and shelter-at-home orders will continue to negatively impact its manufacturing partners. It now expects product supply to be in line with the demand in the second half of 2021.

Also, the company believes that unfilled orders will provide an $80 million to $100 million positive impact on FY21 revenue growth. (See RH stock analysis on TipRanks)

Following the earnings release, Wells Fargo analyst Zachary Fadem significantly raised his price target to $525 from $400 and reiterated a Buy rating. Fadem stated, “Compares get considerably more difficult in 2H, but restaurant demand likely returns, contract sales recover and RH recoups ~3 points of growth from FY20 supply chain disruption. Putting the noise aside, we continue to view the RH story among the most intriguing in retail, with luxury positioning, 25% margin potential and an arsenal of levers (new galleries, international, hospitality, etc.) to generate LT [long-term] growth.”

Meanwhile, the Street has a Moderate Buy analyst consensus based on 5 Buys, 3 Holds and 1 Sell. With shares rising a whopping 119.3% year-to-date, the average price target of $465.14 suggests that shares are fully priced at current levels.

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